Day: October 1, 2019

On 1^st October, American Shipper reported that US Customs and Border Protection has issued holds on 5 products from 5 countries, requiring US importers to re-export those products or provide additional information that they were not made with forced labour.  The products include garments from China, rubber gloves from Malaysia, gold from the DRC, rough diamonds from the Marange fields in Zimbabwe and manufactured bone black from Brazil.

https://www.freightwaves.com/news/cbp-cracks-down-on-forced-labor-in-supply-chains

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On 1^st October, Insurance Marine News reported that a decision has confirmed the position in English law that parties were able to manage sanctions risk contractually, including risks arising from US secondary sanctions.  It says that tt might also reduce uncertainties in relation to some existing sanctions clauses which excuse parties from non-performance of their obligations where performance may cause the party to become subject to US secondary sanctions.  Lamesa Investments Limited v. Cynergy Bank Limited was published on 12^th September.

https://insurancemarinenews.com/insurance-marine-news/english-court-confirms-certain-sanctions-clauses-can-manage-us-secondary-sanctions-risk/

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On 1^st October, Hellenic Shipping News reported claims by the Nigerian Chief of Naval Staff that Nigeria and 15 other countries in the Gulf of Guinea are currently losing $2 billion to pirate attacks annually – as Nigeria was rated as number 1 in pirate attacks in the Gulf of Guinea in a report by the International Maritime Bureau (IMB).  It has also been recently reported that Nigeria was losing $600 million annually to illegal and unreported (IUU) fishing by foreign vessels as a result of lack of equipment such as Automatic Identification System (AIS) and Vessel Monitoring System (VMS), and adequate manpower to police the country’s vast coastline – while it also spends $800 million a year on fish importation, being the 4^th largest importer of fish in the world.

https://www.hellenicshippingnews.com/nigeria-others-lose-2bn-to-pirates-attacks-annually-says-naval-chief/

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A Commentary from RUSI published on 1^st October poses this question and, in the first in a series of Commentaries, RUSI researchers take a broad look at efforts to counteract illicit trade and trade-based money laundering.  In the next Commentary, guest contributor Jonathan Draper will discuss the challenges of tackling trade-based money laundering.  This first Commentary sets the scene, saying that criminal exploitation of the global trade system comes in 2 basic forms –

• The trade in illicit or untaxed goods; and
• the other is the use of legitimate trade to move or conceal criminal proceeds, (generally known as trade-based money laundering or TBML).

Both forms of criminality take advantage of the sheer scale of global trade, the article noting that globally less than 2% of containers are screened each year.  In 2012, the US Congress passed legislation requiring all incoming shipping containers to be screened abroad, in their ports of departure, but the requirement has not been implemented due to costs involved.

However, the article refers to several initiatives that give cause for cautious optimism, saying that it is important that policymakers promote rather than neglect them.  These include Trade Transparency Units, which use data shared between countries to identify anomalies, which exist in only a handful of countries to date.  Another initiative is to include financial institutions, which after all have to employ KYC and CDD, and share information with and between them – although only around 20% of global trade involves them, with the other 80% through “open account” trading, where banks merely process payments.

The article says that shipping lines, freight forwarders, customs brokers and port or warehouse administrators are in more immediate contact with the goods being traded – but, unlike banks and insurance companies, they are not typically obliged to identify or report suspicious activity.  Initiatives to involve these businesses, and their knowledge and access to information have been launched.

https://rusi.org/commentary/have-your-cake-and-trade-it-it-possible-promote-legitimate-commerce-while-reducing

This was a subject which I was I was concerned with in a previous existence, and attempted to assist the community I served in drafting and having published a Public Notice on the subject –

https://www.gov.im/media/1348726/notice-1000-man-trade-based-money-laundering-july-18.pdf

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On 1^st October, the US Treasury announced that the General Electric Company has, on behalf of its 3 subsidiaries – Getsco Technical Services Inc., Bentley Nevada, and GE Betz – agreed a settlement of $2,718,581 to settle its civil liability for 289 alleged violations of Cuba sanctions.  The companies accepted payments totalling approximately £8 million from the Cobalt Refinery Company for goods and services provided to an anonymous Canadian corporate customer of GE. The Canadian corporate jointly owned Cobalt, a mining company, with the Cuban government.

https://content.govdelivery.com/accounts/USTREAS/bulletins/2632585

https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20191001_ge.pdf

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On 1^st October, FATF-style regional body APG published follow-up reports on the 3 territories following their previous mutual evaluation reports.  As is usual, the reports address only changes (if any) in technical compliance ratings – but do not address effectiveness ratings.

Note that Macao, has become the first jurisdiction in the world to achieve LC/C ratings on all 40 Recommendations.

• Sri Lanka – 4^th follow-up report, the MER having been published in September 2015. Sri Lanka has made progress in addressing more of its technical compliance deficiencies identified in its MER and has been upgraded on 4 FATF Recommendations. Recommendations 7, 25 and 38 are now rated LC and 37 is now rated C.  Important progress has been made with supervision, but moderate shortcomings are noted.  As such Recommendation 26 remains at PC while Recommendation 28 is upgraded to PC. With respect to the Recommendations amended after the adoption of Sri Lanka’s MER, the review team assessed Sri Lanka’s compliance with the amendments made to Recommendations 2, 5, 8, 18 and 21 after the adoption of Sri Lanka’s MER.  Sri Lanka has retained the ratings previously assigned in either its MER or earlier follow-up reports for all the recommendations amended.  Sri Lanka will remain on enhanced follow-up, and will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures.
• Mongolia – this is the 2^nd follow-up report following the MER of July 2017. The report says that Mongolia has made significant progress in addressing the technical compliance deficiencies identified in its MER and has been upgraded on 16 FATF Recommendations. Recommendation 28 has been upgraded to PC and Recommendations 2, 6, 7, 17, 19, 22, 23, 24, 25, 26, 32, 33 and 34 have been upgraded to LC.  Recommendations 21 and 29 have been re-rated to C.  However, insufficient progress has been made on Recommendations 1, 8, 14 and 35 to justify a re-rating at this time.  With respect to the other Recommendations which have been amended after the MER was adopted, Mongolia has retained its ratings for Recommendations 5 and 18.  Mongolia exited enhanced follow-up (expedited) and was placed on enhanced follow-up. Mongolia will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures.
• Macao – this is the first follow-up report, the MER being released in December 2017. It says that Macao has made good progress in addressing the technical compliance deficiencies identified in its MER, including through drafting revised legislation and guidelines, and has been upgraded on 3 FATF Recommendations.  Macao was upgraded to LC on Recommendations 22, 23 and 32.  With respect to the FATF Recommendations amended after the adoption of the MER – Recommendations 2, 5, 7, 18 and 21 – Macao has retained the ratings given in the MER.  Macao has no Recommendations remaining at NC/PC. It will remain on regular follow-up, and will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures.

http://www.apgml.org/news/details.aspx?pcPage=1&n=1151

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On 30^th September, the World Customs Organisation released a research paper which examines the current situation regarding Customs procedures and controls related to Free Zones.  The first section of this paper outlines, from a Customs perspective, the definitions and characteristics of Free Zones as well as the economic benefits offered by them.  The second section addresses the risks posed by Free Zones, while the third section offers an analysis of the situation where Customs’ involvement and authority related to Free Zones tend to be at a low level, behind which prevails the perceived misconception of ‘Extraterritoriality’ of Free Zones.  The report says that it has been pointed out by existing literature that Free Zones attract not only legitimate business but also illicit trade or other illicit activities that take advantage of the regulatory exemptions of Free Zones.  It says that the risks seen from Free Zones primarily concern illicit activities perpetrated by exploiting certain aspects of Free Zones perhaps unbeknownst to policy makers.  In addition to illicit activities, such as money laundering, the paper presents some cases of illicit trade and describe their global and interregional nature. The effects of illicit activities on policies are also referenced.

http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/research/research-paper-series/47_free_zones_customs_involvement_omi_en.pdf?db=web

See also –

http://www.wcoomd.org/en/topics/facilitation/activities-and-programmes/free-trade-zone-special-customs-zone.aspx

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On 30^th September, TerraLex Inc published a briefing about the “Entity List”, which imposes a restrictive licensing regime on exports of US-origin goods and technology to designated foreign parties.  It starts by saying that the addition of Chinese telecommunications giant Huawei to the Entity List in May 2019 underscores the willingness of the US Government to employ this powerful regulatory enforcement tool notwithstanding its adverse impact on US relations with a major trading partner as well as on domestic US companies that sell goods and technology to the listed foreign party.  It explains that the Entity List is a list of non-US parties that are prohibited from receiving items subject to the Export Administration Regulations (EAR) unless the exporter receives a licence.  This prohibition precludes the export, re-export, or transfer (in-country) of specified US-origin items to any party named on the Entity List without a licence from the Bureau of Industry and Security (BIS).  A footnote interestingly notes that the Entity List was established in 1997, when it was first invoked to preclude the export of certain computers to Ben Gurion University in Israel without a licence.  Foreign parties eligible for inclusion on the Entity List may include a business, individual, research institution, or government organisation, and branches and operating divisions of a listed entity are considered a part of the listed entity.  However, where the subsidiary of a foreign party is added to the Entity List, the listing does not extend to the subsidiary’s parent company unless the applicable listing so states.  The briefing warns that inclusion on the List can have the effect of strangling its access to supplies of US equipment, parts, or technology – even low-technology consumer goods.  The article goes on to consider the criteria and procedure for additions to the List, and its recent use.  Appeal processes are also discussed.  The briefing concludes by saying that the Commerce Department’s “aggressive” use of the Entity List is unlikely to abate.  It recommends that, in the event they are added to the Entity List, a business should be prepared to make a cogent, credible factual showing that they are no longer engaged in the activities that triggered the listing and are unlikely to engage in such activities in the future.

https://www.lexology.com/library/document.ashx?g=16f6558e-0ea5-4a7d-b5b1-5be85d4a6c2f

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On 30^th September, VoA carried an article saying that North Korean efforts to evade international sanctions have been aided by companies registered in the UK, according to an investigation by the London-based Royal United Services Institute.  British-registered companies are being used to operate cargo ships smuggling coal out of North Korea, which is the country’s biggest export.  The report details how North Korea is able to access US and international financial systems by using a complex network of global actors and company structures.  It says that of 6 vessels from one smuggling network, 4 have been owned by companies registered in the UK – one vessel, the Lucky Star, loaded coal in North Korea as recently as January, and another, Asia Bridge, loaded coal at Nampo in North Korea in early August.  The report’s authors say their investigation raises significant questions about the enforcement of sanctions in the UK, and says that it must tighten oversight on the formation of companies because it is now too easy to create bogus companies.

https://www.voanews.com/europe/report-north-korea-using-companies-registered-britain-bypass-nuclear-sanctions

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On 30^th September, Africa Times carried an article about a new book (by the former head of the now-disbanded high-risk investigation unit at the South African Revenue Service) and the attempted murder of a Zimbabwe tobacco “kingpin”, Simon Rudland, co-owner of Gold Leaf Tobacco.  It says that the South African tobacco industry is split between the established players and the independent upstarts eating into their market share, and both sides have shown they will stop at nothing to achieve supremacy.  The article alleges “dirty tricks” including industrial espionage and cynical lobbying, which has enabled wealthy tobacco companies to infiltrate key state security agencies.  However, a new illicit trade unit, similar in scope to the old high-risk investigations force has been set up.  It has promised a crackdown on rampant tobacco smuggling, with plans to phase out the old, ineffective stamps and introduce a new system of ‘track and trace’ – implementing such a system is a key global requirement under the terms of the World Health Organization’s Illicit Trade Protocol.  It is said that in Kenya, introduction of “track and trace” resulted in a great reduction in illegal cigarettes and the Kenyan Revenue Authority’s revenue collection from cigarettes grew by more than 50%.  The article warns of further interference with plans for the new system.

https://africatimes.com/2019/09/30/why-track-trace-is-the-solution-for-south-africas-tobacco-wars/

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